Gar, you make good points.  Markets that correctly price externalities may still be very inefficient.  But if the government can act to direct the economy around such ineffficiencies, it should do so only if it doesn't imposes costs greater than the costs of the inefficiencies.  My preference is with the lighter hand of government, as government involvement leads to inefficiencies of its own, as well as opportunities for rent-seeking.

"Historically, large-scale infrastructure changes take place only via hands-on government involvement"

Not sure I agree.  The government may play a role in creating or protecting public goods, but most wealth is created by indiividual action, coordinated privately with others.

There may be an argument for government intervention if we feel that a crash program of GHG emission reductions is needed, given the rates of turnover of capital stock.  But this is tremendously expensive.

Better approaches - on top of pricing - are to allow immediate depreciation, improve the speed of siting decisions (through some type of legislation that compensates would be NIMBYs) and allow PUCs to approve technology that is not "least-cost".  But pricing is the single best way to influence the whole economic system.

Tokyo Tom: I'll answer you if you get a little more specific. I will say that energy efficiency acts suspiciously like a public good - that is (even correctly price) market means tend to underprovide it. I suspect that fundamental infrastructure, even when it does not meet the "classic" public good criteria is in fact a public good, but I won't argue that point.

In terms of your counter solutions: I will note that in advocating tax cuts and deregulation, you seem to be more expressing a hope than making an argument. And if I am right that these mature technologies are in fact cheaper than new sources, then net rather than gross public spending on them will save rather than cost money.

There is an ideological drumbeat than has been repeated for decades by Democrats and Republicans alike -"government bad, markets good".  Even in absolute terms, public action plays a large role in wealth creation. But if you look at innovation and infrastructure, the seed corn, public action probably provides a majority.

JMG - on growth:

I tend to disagree with your premise that don't have room to continue to sustainably grow economically. But let's put that aside and assume we have reached the limits of growth, or that we even have to shrink the economy. Even so, efficiency remains important. If you have to cut your income, say, in half, do you really want to have to use even more of that rduced amount for energy? Of course not. If we really need to reduce the size of the economy (again, something I don't agree with) , then increased efficiency even becomes more important.

I found the ideas in this post most enlightening.  By all means I am a big proponent of regulation and shifting taxes at the same time.  Primarily because the economic upheaval of true cost pricing and tax shifting would be huge, if done too quickly.  Government regulation and investment is required to jump start certain industries and set the lowest common denominator, but the goal should be to replace these with proper market signals to keep it going.

I believe though, that if a plan was laid out so that the business community has what they really need, a predictable financial future with a reasonable time line in which to base investment decisions, then shifting the tax base, going to true cost accounting, and increasing carbon taxes are the way to go.

As for the need for "endless economic growth", I think it's clear that this is only necessary as long as we have endless population growth.

If we were to stop the economy from growing, or shrink it, without addressing the population issue, then obviously that wealth divided by more and more people year after year will result in a decreasing average standard of living.

Economic growth will only stop when we stop the population growth, which is the REAL source of resource depletion.

For all the talk of "Sustainable Development" it needs to lead to stability in terms of population.  Otherwise it is not sustainable by definition.

When you admit, as we have, that more growth is not the answer to the problems caused by growth, then give us a call.

who says that the energy future is going to require massive new infrastructure? maybe it's going to be electric cars that we plug in at home- maybe solar cells- are you sure that the wave of the future is centralized? I'm not. And I don't want the government betting on that either. But I don't disagree with your general point that price signals alone are always sufficient.

J.S.

J.S. htt://voicesofreason.info

J.S. htt://voicesofreason.info

I'm not absolutely sure that the future will be centralized - but I can make a good case. However decentralized or centralize, that still requires infrastructure.  Whether the future is centralized for decentralized, we will need a smart grid. Whether the future is centralized or decentralized we will need more efficiency in terms squeezing more GDP out of a unit of solar energy. And in terms of human behavior, a window shutter is as much infrastructure as concentrating PV farms.

You will note that the bulk of public works suggested are mature technologies we know are a good idea and will fit into any type of future -  regrets choices.

Now I do favor some subsidies for almost-mature technologies where there are chicken egg situations. But I would expect what we funded other this to be contested. The idea being that this is the government equivalent of the diversified high risk portion of a balanced investment porfolio. So the subsidy for CyberTran and PRT would be to build some real world test systems. And, as screening require that bidders for such system accept some of the risk, by paying them only upon delivery according to spec (with maybe a real small down payment). That does not guarantee that these would work, but it improves the odds. It would mean that bidder not only is confident but has managed to find a lender or investor who shares that confidence. If you did a lot this deadlock breaking I'd expect there to be failures, which the successes would more than pay for.  

The solar cell case is really begging to be done, because it does not require picking a winner, but only picking one of many "good-enough" technologies. So you can pick a safe, behind-covering choice where the simple scaling up of production is likely to lead to less expensive solar cells. Once you have inexpensive solar cells, and thus a larger market, other solar cell companies could get investors and loans to go after that same large market. As I said, a sacrificial lamb (unless  the best technology is chosen - and in which case great).